Thailand losing its ASEAN FDI crown as investors opt for ‘more’ attractive Vietnam and Indonesia

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The rising labour cost, the ageing population, the political uncertainties, along with growing competition for foreign direct investments has left Thailand licking it wounds in the race for attracting investors to invest in Thailand.

Thailand, one of the few countries that had been the king of attracting FDI into the country over the past few decades, has started to lose its crown of being the top FDI recipient to the likes of the newcomer – Vietnam.

“Thailand’s FDI applications have fallen this year, bucking the regional trend as other ASEAN countries saw foreign interest returning with the economic reopening. FDI application plunged to US$3.8 billion in the first half of 2022, less than half of the $8.8 billion recorded in the first half of 2021,” Lee Ju Ye, analyst at Maybank in Singapore said.

Lee Ju Ye came out to say that the main issues that weighing down was a steep decline in the services sector (-90%), but also a fall in the manufacturing sector (-15%), especially chemicals (-75%), electronics (-57%), and light industry & textile (-53%).

Thailand’s Board of Investment (BoI) has in the past accepted that the FDI into Thailand has been on a declining trend as the data released by the BoI indicated that during the 1st half of 2022 the value of FDI dropped by as much as 42% year-on-year to 219.7 billion Baht, despite the application for FDI during the same period rose by as much as 4%.

BoI’s secretary general – Duangjai Asawachintachit, has come out to say that the BoI wants to promote the automotive and digital sector. But despite the plans to promote these sectors, very little investments have flowed into the country.

During 2021, pledges accounted for 71% of total applications, totalling 455.3 billion Baht, an almost three-fold rise from the 169.3 billion Baht in 2020, the BoI said.

Maybank’s Lee Ju Ye said that Thailand has historically been successful in attracting FDI, with inward FDI stock rising significantly in the mid-1980s. This was driven by the government’s export-led growth strategy following the Plaza Accord in 1985, which resulted in a devaluation of the Baht relative to the USD and other Asian currencies.

FDI stock rose from just 5% of GDP in 1985 to 24.5% in 2000 and has more than doubled to 55.2% of  gross domestic product (GDP) as of 2021.

Thailand’s inward FDI stock was the highest in ASEAN at US$ 279 billion in 2021, according to UNCTAD.

The manufacturing sector has always been the largest target sector for FDI, accounting for more than 40% of total FDI. FDI in real estate (19% of total FDI over the past 10 years) and finance & insurance (17%) are the next largest target sectors.

As for the countries that invested in Thailand, the largest proportion came from Japan (46% of total FDI over the past 10 years), Singapore (16%), and the USA (13%), although FDI from the USA has been shrinking in recent years.

Halving Share of Inward FDI

Lee Ju Ye says that over the past few years the FDI flows have weakened, down from the peak in the early 2000s.

She says that Thailand’s inward FDI flows as share of GDP fell to 1.9% between 2011 to 2019, compared to around 3.4% in 2001 to 2010. Thailand’s share of inward FDI flows into ASEAN has also fallen from the peak of 33% in 2001 to 2010 to about 15.2% in 2011 to 2019 and was the lowest at 6% in 2020 to 2021, as countries such as Vietnam and Indonesia take the lead.

In contrast, other ASEAN countries have seen stronger FDI inflows and applications in recent years. Indonesia’s foreign investment realization surged by +42% in Q2 2022, driven by the manufacturing (+61%) sector particularly basic metal, amid the government’s push to develop downstream industries such as nickel ore processing for EV batteries and energy storage systems.

Malaysia’s manufacturing FDI is gaining momentum following the record high approvals worth RM180 billion (US$ 26 billion) in 2021, concentrated in the electronics sector.

Vietnam’s FDI applications in manufacturing continues to rise, surging by +16% in the first 8 months of 2022 from the same period a year ago. Apple’s suppliers Foxconn and Luxshare Precision Industry are in talks to produce Apple Watch and MacBook in Vietnam for the first time, according to a media reports.

Even the advanced economy such as Singapore, has seen investment commitments jumped by +33% in H1 2022, half of which was for the electronics cluster.

Thailand’s Manufacturing Export Share Dip

The decline in the FDI has also meant that Thailand’s share of global manufactured exports has been falling steadily from the peak of 1.47% in 2016 to 1.36% in 2020.

Thailand was once the top exporter of manufactures in ASEAN, but today Thailand has been replaced by Vietnam since 2017. Vietnam’s share has risen sharply from just 0.46% in 2010 to 2% in 2020. For agriculture products, Thailand’s global export share has fallen from the peak of 2.9% in 2011 to 2.3% in 2020.

Thailand was receiving FDI into the computer & electronics over the past 2 decades at around 9.2% of total FDI, dominated by MNCs including Japan’s Hitachi and Fujitsu, and the US’ Seagate Technology and Western Digital Corp.

These companies are concentrated in hard disc drives (HDDs) and developed Thailand into the largest global exporter of HDDs. However, slowing demand for personal computers and rising competition from solid-state drives have resulted in a steady decline in HDD production since 2011.

Ageing Population

Apart from the rising labour cost which is just about 18% below that of China at US$ 460/month, the country also faces the problem of ageing population and shrinking labour force is tarnishing Thailand’s appeal.

Thailand’s working-age population was the earliest to peak in ASEAN in 2017. Total population is expected to peak in 2029.

This has prompted a shortage of labour in the manufacturing and service sectors. Thailand faces a shortage of around 500,000 foreign workers in manufacturing and services sectors, after more than 300,000 workers left during the pandemic. Only about 20,000 foreign workers have returned this year under bilateral contracts between Thailand and some ASEAN countries.

Thailand currently has around 2.5 million foreign workers, who account for 6.2% of total employment. The government is easing rules for migrant workers, allowing Laos, Myanmar, Vietnam, and Cambodia nationalities who are working illegally in Thailand to register and shift into the formal system. The government has also extended the expiring work permits for about 1.7 million people through 2025.


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